The pending sale of Marketo to a private equity firm, the latest in a series of marketing automation deals, could generate more services business for partners.

The pending $1.79 billion sale of marketing automation vendor Marketo Inc. to a private equity firm may prove a boon to the company's channel partners that deploy the technology for customers.

The acquisition agreement, announced May 31, is the latest in a series of marketing automation vendor buyouts. In October 2012, interactive marketing provider ExactTarget acquired Pardot, a marketing automation company. Oracle followed that $95.5 million deal in December with its $871 million purchase of Eloqua, also in the marketing automation space. Adobe Systems in 2013 closed its acquisition of Neolane, a provider of cross-channel campaign management technology. Salesforce purchased ExactTarget for $2.5 billion that same year, bolstering the Salesforce Marketing Cloud. Not to be left out, IBM acquired Silverpop and its cloud-based marketing technology, which paved the way for the IBM Marketing Cloud.

"We've seen billions poured into the marketing cloud over the past five years," noted David Lewis, CEO at DemandGen International Inc., a marketing technology consulting firm based in San Ramon, Calif. DemandGen partners with Marketo. "Everybody is kind of wondering with Marketo having such good growth ... who will step in?"

The answer is Vista Equity Partners, a private equity firm that specializes in software and technology businesses. The company's portfolio companies include Autotask, which provides IT management software to managed service providers. The transaction, which will take Marketo private, is set to close in the third quarter of 2016.

"What is nice about a private equity firm coming in [is] it is an opportunity ... to take Marketo to the next level," Lewis said. That opportunity isn't just around continued growth, but also the potential for operational improvements that could reduce costs and boost profitability, he added.

Service impact

Vista's exploration of Marketo's costs could end up focusing on its professional services operation. Marketo's services operations does about $25 million in revenue, but a look at the company's financials shows it is losing money, Lewis noted. He said the marketing automation vendor has been smart to provide services in order to ensure customer adoption of its products. But transitioning more work to partners would be one way to improve the company's bottom line.

The vetting-out process will most likely reveal that service is better delivered with partners so we'll see an accelerated rate of these types of partnerships.
Ryan Vongpresident and CEO, Digital Pi

The focus on greater profitability would "create an opportunity for services companies and agencies to offload some of the work falling on Marketo's shoulders."

Ryan Vong, president and CEO at Digital Pi, a marketing automation consulting and training company, also suggested that the pending deal could result in more services work for partners.

"The vetting-out process will most likely reveal that service is better delivered with partners so we'll see an accelerated rate of these types of partnerships," Vong said. Digital Pi works with the Marketo platform.

Vendor neutrality

The involvement of a private equity firm sets the Marketo deal apart from the earlier marketing automation vendor transactions. The key difference: Marketo's marketing automation software isn't being absorbed into another vendor's technology. That may have been the case under other sales arrangements. Earlier this month, published reports said Marketo was exploring a potential sale, with Microsoft and SAP seen as potential buyers.

"From my perspective, this is a better outcome than anticipated for a few reasons," Vong said. "The company remains independent to pursue the platform vision with the added bonus of cash injection into development."

Vong said the Marketo platform will have to become more "open" in order to succeed. Greater openness, he said, would create a larger ecosystem for tools and integrations -- a win-win for customers, he noted. The acquisition could spark investment that would help accelerate the pace of opening the platform. Vong contrasted Marketo's potential direction to the earlier marketing automation buyouts in which the acquirers had "plans to integrate within their offerings."

Phil Fernandez, chairman and CEO at Marketo, in a prepared statement, said the deal would enable the company to "remain the independent category leader."

But the Marketo story may not end with Vista's equity investor ownership.

"I would not be surprised if we see another transaction in the next three to five years," Lewis said.

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